Types of Business Organisations
Business organisations are legal entities formed with the purpose of conducting a business activity. There are various types of business organisations such as sole proprietorship, partnership and corporation.
Selecting the most advantageous form for your business organization involves careful consideration and advice from an experienced attorney.
Forms of business organisation
Form of Business Organisation has an enormous effect on its owners, partners, earnings and legacy of a company. Tax considerations, legal requirements, financial concerns and personal needs all play into this decision-making process.
Sole proprietorship – This form of business organization is the most frequently chosen, as it provides an easy and inexpensive means of starting up small enterprises. A sole proprietor’s personal liability for debts incurred by the business extends to any debts or expenses it incurs; profits are reported on his individual tax return.
Partnership – Partnership is a simple and straightforward business organization formed between two or more people who join their resources to form the venture and share profits equally. Unlike sole proprietorships, partnerships exist as separate legal entities with their own life cycle.
A corporation is an independent legal entity which operates for the benefit of its stockholders and has unlimited commercial life. A corporation must adhere to certain technical formalities, including holding director and shareholder meetings, recording minutes from both meetings, having its board approve major business transactions and maintaining corporate record-keeping.
A sole proprietorship is an easy and inexpensive way to establish a business organization. According to the Small Business Administration (SBA), it’s also one of the most prevalent structures among entrepreneurs.
Solo ownership offers several benefits, from minimal paperwork and setup costs to easier management and full control over its finances and operations.
One major drawback of sole proprietorships is that owners can become personally liable for debts incurred by their business, making raising capital challenging and banks less willing to lend.
Though limited, sole proprietorship offers several other advantages that make it attractive to entrepreneurs. These include being able to hire employees immediately as they become available and taking advantage of collaboration as your business expands.
Partnership is a form of business organization in which two or more people share in profits, losses and financial obligations of the partnership. There are two major categories of partnerships: general partnership (GP) and limited liability partnership (LP).
General partnerships involve all owners who share unlimited personal liability for its debts and obligations; limited partnerships on the other hand have only investors that contribute money, rather than managing it themselves.
Careful consideration must be given when selecting business partners and forging lasting business relationships. Doing this will foster mutual trust between the businesses involved, helping build their respective brands while strengthening both reputations.
Partnership can also provide your team with valuable skills that are missing. For example, if your creative skills make up most of the business but lack expertise in handling finances or cash flow management, having someone on board who possesses these expertise could make the business even more successful.
A corporation is one of the most common business structures and can be beneficial to many different types of enterprises. It offers several benefits that could prove invaluable for any type of enterprise – personal liability protection, continuity and access to capital among them.
C-corps are one of the most frequently utilized corporation types, offering unlimited shareholder shares with limited liability protection against debts and legal obligations incurred by the business.
Corporate formalities involve holding initial and annual meetings of directors and shareholders, adopting and updating bylaws, issuing stock shares to owners, and more. Although these tasks can be time consuming and costly, they can help a business remain organized.
Owners may enjoy additional tax-free benefits as owners, such as deductibility of employee insurance premiums and retirement plan costs. Furthermore, corporations often attract investors due to being listed on public stock exchanges where ownership shares of the business may be sold on. All of this makes your business more appealing to potential customers, partners and employees.